AOL Time Warner's most recent earnings report highlights an increasingly complex accounting puzzle for investors seeking to untangle the finances of the world's largest media company.

Even as the media giant reported earnings that were in line with Wall Street expectations Wednesday, some analysts complained the company has made its operations more obscure than ever, making it difficult to judge its performance and predict future results.

One analyst pointed to two areas where the company has offered scant and potentially unclear information: its treatment of intercompany transactions and its failure to make firm projections for the company's major growth engines, America Online and Time Warner Cable.

"It's an added layer of opaqueness to the earnings report," SoundView Technology Group analyst Jordan Rohan said of revenue that flows from one unit within the company to another. "It becomes more difficult to accurately assess the performance of the individual units."

The criticism comes as investors are growing more concerned about murky earnings reports, an issue that was exacerbated with the surprise implosion of energy trader Enron, once America's seventh largest corporation and a Wall Street darling.

Although AOL Time Warner is not doing anything improper or unusual, the company faces quiet criticism from some financial analysts who complain they haven't been given enough information to adequately understand the company's sprawling operations.

"Especially in the post-Enron environment, people are looking for as much (information) as they can get their hands on," said Erick Maronak, research director at NewBridge Partners, which owns shares of AOL Time Warner.

The problem has been exacerbated, critics say, by AOL Time Warner's growing emphasis on the importance of companywide results over divisional results. That strategy was voiced Wednesday by CEO-elect Richard Parsons, who told analysts that his imperative is to make the company's whole greater than the sum of its parts.

Tricia Primrose, an AOL Time Warner spokeswoman, defended the emphasis. "AOL Time Warner is committed to continuing to provide investors with the most information about our company and its operations so that investors can make informed assessments about our business," she said.

The company is shying away from offering estimates for its different units because it doesn't want to project events that may or may not happen in the future, Primrose added.

But in taking a holistic tack, critics say AOL Time Warner has departed from Time Warner's historical emphasis on highlighting the performance of individual divisions, a method that some believe provided more detailed projections about the company's prospects.

AOL Time Warner is "hoping people will accept it as a whole, which makes it more difficult to do my job--and which is why there's more backlash in the analyst community," Rohan said.

AOL Time Warner's report Wednesday showed earnings in line with expectations after the company cut its bold financial estimates earlier in the month. Many analysts viewed the downgrade as too little, too late; they faulted management for sticking stubbornly to its aggressive projections despite clear signs the economy was continuing to worsen.

Until last November, top executives had stuck stubbornly to predictions that the company would generate $40 billion in revenue and $11 billion in EBITDA (earnings before interest, taxes, depreciation and amortization)--projections made about two years ago, before a steep slide in the advertising market. In the end, after belated downward revisions, the company came in at $38.2 billion in revenue and $9.9 billion in EBITDA.

AOL Time Warner executives "made a Custer's last stand on their numbers, and now they're sending out 19 pages of trending schedules and pro formas of pro formas," said Jeffrey Logsdon, an equity analyst at Gerard Klauer Mattison. "People are really trying to drill down and compare apples to apples and not apples to apple seeds."

Spending its money in-house Among other things, critics say the growing level of intercompany transactions at the media behemoth could potentially mask problems at underperforming divisions.

Synergy mixAOL Time Warner, which has been touting cross-promotion within the company, has been pouring money into its numerous divisions.

3 Months EndedDecember 31

Years EndedDecember 31

2001

2000

2001

2000

AOL

$ 138

$ -

$ 228

$ -

Cable

33

2

57

7

Film

208

135

784

560

Networks

160

112

618

451

Music

115

63

302

211

Publishing

11

7

35

29

Total Intercompany Revenues

$ 665

$ 319

$ 2,024

$ 1,258

Source: AOL Time Warner

For example, AOL Time Warner reported that the AOL division's advertising and commerce revenue declined 7 percent, from $686 million in the fourth quarter of 2000 to $637 million in the fourth quarter of 2001.

But in a footnote to the lengthy report, the company noted that other corporate units poured $138 million worth of advertising during the quarter into the AOL unit, which accounted for more than a fifth of that unit's revenue.

Without this intercompany advertising, such as marketing campaigns on behalf of New Line Cinema's "The Lord of the Rings," revenue declined 27 percent from the same period in 2000.

Because intercompany revenues are offset by corresponding expenses recorded by other divisions, they do not affect the company's overall results. Thus, the $228 million in intercompany ads booked for the year by the AOL unit is not included in AOL Time Warner's $38 billion in companywide annual revenues reported this week.

AOL's Primrose said the growth in intercompany revenues is an expected part of the merger.

"One of the key merger synergies for 2001 has been an increase in the use of our own platforms to promote our products and services," she said. "This makes good business sense, given we have some of the best media properties."

Regardless of the legitimacy of such techniques, some analysts said AOL Time Warner, whose stock closed Thursday at $26.50 a share, near its 52-week low, may pay a price if investors do not believe they are getting the best information possible about its business.

"Investors are willing to pay less for shares of companies whose businesses are hard to analyze," Rohan said.

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